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Amylin Rejected $3.5 Billion Offer; Stock Soars

In the wake of an FDA decision to approve Amylin Pharmaceuticals' (NASDAQ: AMLN) diabetes drug Bydureon in late January, I wrote an article highlighting the potential for a takeout offer in the name. At the time, Wall Street was split about the prospects for the stock post-Bydureon approval. Many analysts pointed to the company's weak financial position and wondered how the company would successfully market the drug.

Deutsche Bank's Robyn Karnauskas told investors that the bank remains positive on Bydureon's prospects, but noted that "significant execution risk remains." Karnauskas added that "We view Amylin's capital structure as poor, with $2 billion of debt and $210 million in cash," but said that the company's options for financing should improve post-approval.

Michael King at Rodman & Renshaw argued that "Bydureon's approval in the U.S. will not solve Amylin's current issues," with respect to a weak cash position. Goldman Sachs also reiterated its "Sell" rating on the stock and told clients that "We continue to expect Bydureon to face numerous challenges upon launch..."

In light of Wednesday's revelation that Bristol-Myers Squibb (NYSE: BMY) made a $3.5 billion unsolicited bid for the company earlier this year the most noteworthy analysis in the immediate wake of Bydureon's FDA approval was that of Piper Jaffray. The analysts wrote on January 30 that the FDA approval for Bydureon paves the way for a potential acquisition of the company.

In particular, they argued that "based on our analysis of recent biotech acquisition's, AMLN could be acquired for $33 per share." Bristol-Myers' offered $22 for the company according to Bloomberg sources. While the $22 offer is considerably less than the $33 that the Piper Jaffray analysts speculated about, it still represents a very large premium over yesterday's closing price. Furthermore, the news confirms that AMLN is definitely in play and a higher offer could be forthcoming.

During Wednesday's trading session, shares have soared 47.63% to $22.72 in the wake of the leaked news of a takeover offer from BMY, which AMLN has rejected. Bloomberg reported this morning that "Bristol-Myers proposed an acquisition at $22 a share in a letter to Amylin, which the board turned down last month," citing unnamed sources.

The subsequent jump in the stock is the largest single day gain in AMLN since October 2001. In the wake of the news, Deutsche Bank's Karnauskas wrote "Bristol as an acquirer makes sense," and that "Amylin could be worth up to $31 a share based on expense synergies. However, Bristol is financially disciplined.”

Possibly the most interesting take on Wednesday's news came from Leerink Swann analyst Joshua Schimmer, who told Bloomberg "We generally believe these stories are ‘leaks' that serve a purpose. In this case, the purpose of the announcement, we believe, is to tie Amylin's hands and prevent them from doing an ex-U.S. deal instead of a sale.”

Schimmer's view hints at the fact that a partnership between Amylin and Eli Lilly (NYSE: LLY) fell apart last year prior to the approval of Bydureon. Under the agreement, the two companies had planned to market the drug jointly in the United States with the much larger Lilly handling international marketing of Bydureon.

While Amylin appears to be angling for a new partnership to handle ex-U.S. marketing duties for Bydureon, the leak of the BMY buyout offer is likely to put pressure on the company to sell itself instead. Analysts believe that there could be other suitors besides Bristol.

Specifically, there is talk that AstraZeneca (NSYE: AZN) could pay more for Amylin. "We're active in looking at assets that are complementary with our disease area focus and our strategy but of course we don't comment on specific rumors or speculation,” Sarah Lindgreen, a spokeswoman at AstraZeneca, said in an interview.

Given Amylin's relatively weak cash position and its lack of a marketing partner for Bydureon, the likelihood of a deal in the wake of today's announcement appears to be fairly high. With the stock jumping 47% on Wednesday solely because a deal was on the table last month, shareholders are going to likely favor a sale of the company if a more substantial premium can be negotiated.